The Cost of Fraud Hits Every Business

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By ProPay/TSYS

It’s no news flash that fraud has a cost to your business. The cost of fraud includes the direct costs, the impact of chargebacks, the problem of false positives and of course the negative customer experience issues that can come from more robust security processes. Make no mistake, fraud has a material impact on your business.

Let’s look at a handful of those costs in more detail…

Manual reviews - Research shows 29 percent of merchants report mitigating fraud through automated services cost too much. This can lead to merchants attempting to address fraud through manual reviews which is not scalable, consistent or in most cases a practical or effective solution. Recent research suggests the annual cost of manual reviews for a small merchant is roughly $378,000, while a medium-size merchant’s costs can run around $825,000.

Turning away good business - Research estimates merchants decline roughly two times more orders than they should, declining an average of 2.6 percent of transactions when actual fraud rates run around .9 percent. No fancy business consultant is required to know turning away customers who want your product or service and are willing to pay for it is bad business. The classic throwing out the baby with the bathwater metaphor comes to mind. The good news is there is no need for turning away quality customers.

Lost or stolen merchandise – Fraud losses as a percentage of revenue nearly doubled in 2015 as a result of lost or stolen products. The larger the transaction size, the more likely the purchase may be fraudulent. The cost associated with potential loss rises as well as transaction size grows.

Shipping costs – A high proportion of fraudulent purchase activity involves expedited shipping, and as mentioned above often on larger orders. This cost is typically not recovered and can be significant. The best practice is to head this off before any product leaves your warehouse.

The price of manpower – Dealing with all these issues can be extremely disruptive and consume a disproportionate amount of human resource. Addressing customers directly, working through issues with partners, vendors, credit card companies and others is labor intensive, slow and extremely inefficient.

The bottom line is that your bottom line is taking a hit at some level from fraudulent activity. ProPay has a number of tools, technologies and services to fit any business to mitigate fraud risks, and costs.